SunPower Is a Strong Buy

SunPower (SPWR) announced second quarter ended July 3, 2016 total non-GAAP revenue of $401.8 million, up 7 percent year-over-year from $376.7 million of non-GAAP revenue during the same period last year but, declined 7 percent sequentially from non-GAAP revenue of $433.6 million in first quarter of 2016. Going forward, the company estimates third quarter of 2016 non-GAAP revenue to be in the range of $750 million to $850 million.

SunPower declared second quarter of 2016 non-GAAP net loss of $30.1 million or $0.22 of net loss per diluted share compared to non-GAAP net loss of $41.2 million or $0.30 of loss per diluted share in first quarter of 2016 and non-GAAP net income of $27.2 million or $0.18 per diluted share in second quarter of 2015.

Moving ahead, SunPower estimates non-GAAP EBITDA to be in the range of $115 million to $140 million.

The solar power equipment manufacturing company reported continued year-over-year top line expansion primarily driven by significant residential and commercial customer demand for the company’s advanced solar power generation solutions.

Managing the business efficiently

SunPower stock has continued to witness a sharp decline in its pricing since the beginning of this financial year 2016 that can be primarily attributed to the weaker key commodities and energy demand globally, driving down its core pricing and thus, impacting the stock’s overall pricing.

Image by skeeze / Pixabay

However, despite a depressed stock pricing, SunPower is believed to have a solid and existing Holdco project position with a total project capacity of 1,958 MW including the residential, commercial and power plants project development capacities of 302 MW, 186 MW and 1,469 MW respectively.

Further, SunPower is strategically managing the short-term project valuation constraints including, rising impact of bonus devaluation schedule or timing extension, near-term capital cost growing for project finance and tax equity and extremely competitive PPA valuation of below $50 per MWh coupled with the rapid shortening of the construction cycle. The company is successfully addressing these key challenges proactively through focusing on optimizing both core and non-core expenditures in the major markets such as the Americas, strategic modification of project sales schedule to de-risk IRRs and enhance buyer universe, impressively utilize total collaboration in global markets to minimize financing costs, strategic shifting of panel assembly capability to Mexico while developing P-Series expense program or Oasis.

SunPower seems consistently focused on optimizing its financial position by minimizing the non-core expenditures while strategically investing in superior development of highly-efficient solar power generating solutions to consistently deliver greater output per unit area of the solar panels.

Key wins

SunPower and California State University, Long Beach (CSULB) recently declared an agreement where the former would strategically implement a 4.8 MW SunPower® Helix™ Carport solar power system at two major university parking zones and thus, allow the university to fulfill nearly 15 percent of its total campus electricity load through renewable and clean solar power. In addition, this cost-effective solar power generation mechanism would uniquely control electrical expenditures and minimize its carbon footprint.

The solar power generation equipment manufacturer has provided a robust financial guidance for both third quarter of 2016 and complete fiscal year 2016 mainly driven by expanding prospective demand for clean and renewable sources of energy while significantly restricted usage of fossil fuel energy.

Importantly, the solar panels installed by SunPower at the strategic Holt project has uniquely exceeded 8.6-megawatt power generation mechanism installed and operational at Prologis Inc.’s compound located in California. Moreover, the strategic rooftop solar panel installations at core companies such as Intel Inc. is believed to encourage several other companies to increasingly install the low running costs solar panel installations which is hugely beneficial for SunPower.

The expanding usage of renewable sources of energy such as solar power in the major companies worldwide depicts a significant expansion opportunity for SunPower that should consistently deliver long-term company growth while offering attractive shareholder returns.

Conclusion

Overall, the investors are advised to “Hold” their position in SunPower Corporation considering the company’s significant long-term growth prospects with a rapid shift towards the usage of clean and renewable sources of energy and thus, offering a huge expansion opportunity for the solar power equipment manufacturing company. However, SunPower needs to optimize its debt-burdened balance sheet with significant total debt of $2.23 billion against weaker total cash position of $590.09 million only, restricting the company to make future growth investments. The profit margin of -21.75% is also disappointing. The PEG ratio of 62.85 indicates healthy and industry-leading but, expensive company growth.